What is a prohibited sum under section 809RC of the Income Tax Act 2007?

A prohibited sum is any amount paid into a qualifying account that does not consist entirely of, or derive wholly from, qualifying employment earnings, interest earned on the account itself, or proceeds from disposing of employment-related securities or options in qualifying circumstances. Rental income or investment returns from non-employment sources would be examples of prohibited sums.

How can a breach of the deposit rule be remedied under section 809RC?

A breach can be remedied by transferring out the required amount — the prohibited sum plus any further prohibited sums deposited since — in a single transfer within 30 days of the individual becoming aware, or reasonably ought to have become aware, of the prohibited deposit. Multiple prohibited sums removed together count as one breach.

What happens if three breaches of the deposit rule occur within 12 months?

If three breaches occur within any 12-month period, the third breach cannot be remedied. The qualifying account is disqualified from the beginning of the tax year in which the third breach occurs, removing it from the favourable mixed fund treatment under United Kingdom law and potentially triggering adverse tax consequences.

What makes a tax year a relevant tax year for the deposit rule under section 809RC?

A tax year is relevant if the individual has general earnings from the employment for that year, those earnings include both UK-taxable earnings under section 15(1) of ITEPA 2003 and foreign earnings taxed on the remittance basis under section 26(1), and amounts from both categories are paid into the qualifying account during that year.

Income Tax Act 2007 section 809RC

Breaches of the deposit rule

Section 809RC defines what constitutes a breach of the deposit rule for qualifying accounts used under the mixed fund rules, explains how breaches can be remedied, and sets out the consequences of repeated breaches.

A breach occurs when a "prohibited sum" — any amount not wholly derived from qualifying employment earnings, account interest, or eligible employment-related securities proceeds — is paid into the qualifying account on or after the qualifying date.
A breach can be remedied by transferring out the prohibited sum (plus any further prohibited sums paid in since) in a single transfer within 30 days of the individual becoming aware, or reasonably ought to have become aware, of the prohibited deposit.
If three breaches occur within any 12-month period, the third breach cannot be remedied, which will result in the account being disqualified from the beginning of the tax year in which the third breach occurs.
Where multiple prohibited sums are deposited before the required amount is transferred out to remedy an earlier breach, those subsequent deposits do not count as separate breaches provided they form part of the required amount removed in the single corrective transfer.

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